Once again it’s been a bad few days for the UK’s banking industry. The sector’s already battered reputation has received another good mauling over the on-going LIBOR scandal and the resignation of HSBC’s chief compliance officer, David Bagley, following publication of a damning report alleging the bank may have inadvertently allowed the laundering of Mexican drug money.

I doubt I am alone in being deeply disillusioned at the levels of mismanagement that these events suggest at some of our largest and best known financial institutions – and all this at a time when we need our financial services industry to be performing at the top of its game if we are to dig ourselves out of our current the economic hole.

As I start to speculate about what’s gone wrong with the way these institutions are managed, my mind turns to well rehearsed arguments such as; inadequate regulation, a distorted approach to risk management and broken performance management systems driving profit at the cost of ethics. Whilst these factors no doubt all have their part to play in the continuing malaise, a distillation of evidence leads me to one simple conclusion; there is something profoundly broken about the way in which leaders and managers of these institutions solve problems and make decisions – in short, there is something wrong with the way in which they think.

It seems that well intentioned individuals are increasingly influenced, albeit unconsciously, by distorted models of what is normal and acceptable behaviour when making choices, that the pressure to take decisions quickly is impairing our ability to balance risks and benefits and perhaps the complexity of today’s financial products and the processes designed to support them has relegated effective, rigorous problem solving into the ‘too hard’ box with the consequence of some very, very costly mistakes.

Of course these recent examples even when added to the seemingly endless string of similar ‘bad management’ stories we have heard recently don’t prove that poor quality of thinking is endemic across the entire financial services industry, but what they do perhaps show is that poor thinking can break a career, as in the case of Messrs. Bob Diamond and David Bagley or perhaps even an entire organisation as is the case with Lehman Brothers in 2008.

We might expect that the ability to think clearly and effectively is the essential component of leadership and management. After all, how did these good people secure their elevated positions without the ability to appraise complex situations, solve problems, make decisions and manage risks and opportunities?  The evidence to support this view, however, is not encouraging. A recent study conducted by One Poll for the management consulting firm Kepner-Tregoe, gathered opinions from 502 UK-based senior managers and concluded that an over-reliance on the individual and a lack of involvement of those with relevant expertise and experience might partly account for this questionable performance when it comes to effective issue resolution.

Almost half (48%) of the executives surveyed, thought that critical decisions in their organisations were being made by individuals rather than by a leadership team. Half (50%) went on to say they believed ineffective problem solving was due to senior leaders failing to draw on internal experience or relying on decisions made by colleagues without experience. Alarmingly one in six (17%) described the approach of their organisation to problem solving as merely trial and error.

The idea that there is value in a more participative approach to problem solving and decision making is of course nothing new, but why should it emerge as the central theme in this recent survey?

Perhaps as the need for speed becomes ever more prevalent, the pressure on leaders to respond to issues with fast, intuitive, individual responses has never been greater. As the quantity and criticality of the problems solved and decisions taken by individuals alone increases, the inadequacy of this approach becomes exposed.

And so what’s the problem with relying in an individual leaders’s intuitive judgement? Surely this is why they are paid the big bucks? The clue here is to understand that our intuition is simply and only recognition. Faced with a situation we recognise, there will be value in our judgement and in very familiar situations, we might even be said to have developed expert intuition. The challenge comes when the issue that requires thought goes beyond our direct experience and this is where the mistakes are more likely to happen.

Psychologists tell us that the ideas we generate when wrestling with problems and decisions can be thought of as nodes in a vast network called associative memory in which each idea is linked to many others. When an idea forms, it does not simply trigger one other idea, it instantly activates many ideas which in turn activate many more in an exponential explosion of thought. As only a very few of these activated ideas register in our conscious minds, we cannot be certain of how germane the set of ideas is that shapes our choices or offers insights as to the likely cause of problems. Never wanting to be short of something to say, we humans have intuitive opinions about almost everything we encounter and these opinions are influenced by these unconscious ideas activated within our associative memory, whether directly relevant or not.  In the immortal words of Arnold H. Glasgow; “The fewer the facts the stronger the opinions.”

As we make our individual judgements, we are not consciously aware of whether our intuition is referencing solid experience or some tenuously related incident but we will effortlessly and possibly incorrectly come up with an answer, our intuition will resolve any ambiguity, and the really scary part is that you won’t even know it.

Might this go some way to explain why there is a felt need for wider participation and involvement with problem solving and decision as highlighted in this recent survey? The act of ‘getting the team together’ when a leader encounters an issue that goes beyond his or her experience does not merely ensure that more directly relevant experience is brought to bear.  The thoughtful analysis of the situation slows the whole process down, ensuring a more holistic view is taken of a situation, the possibility of decisions being biased by unconscious influences is reduced and the felt need to immediately jump into action is resisted. It couldn’t be this simple, could it?

Sam Bodley-Scott
Principal & Director of Strategic Consulting
Kepner-Tregoe Inc.
WWW.kepner-tregoe.com